Monday, 19 September 2016

Ministry of Consumer Affairs nails Amway with guidelines

The Ministry of Consumers Affairs has
taken a right decision in preparing an advisory issuing the model framework to
prepare guidelines by the State governments and Union Territories to expose the
illegal activities of the direct selling companies which are in fact indulging
in illegal money circulation schemes in the guise of selling products and
services. It exposed the true colours of the direct selling companies in
general and Amway in particular. With the help of the model framework, now it
is easier to pinpoint the illegal activities of these companies.

It has prohibited entry
fee/registration fee charged by the companies to enroll members and also
collection of renewal fee every year. It may be recalled that the AP High Court
pointed out that the Amway has been illegally lining its pockets by charging
registration fee and renewal fee from the members which is nothing but easy and
quick money. Though the new set of guidelines is almost similar to the
guidelines issued earlier, there are only thin differences.

The pyramid scheme is clearly defined
in the model framework. Moreover, it prohibits compulsion of these companies to
purchase huge quantities of goods which is detriment to the interest of the
consumers. These companies encourage the members to stock in large
quantities offering commission of 40 per cent or more. They are also compelled
to take back the products if the consumer is dissatisfied. However, it should
have been made clear that the companies should directly take back the products
instead of the present practice of returning through the upline members.

The companies also need to provide a
grievance redressal mechanism to solve the grievances in a time-bound manner.
In view of the framework, it would be easier for the aggrieved consumers to file
criminal cases against these fraudulent direct selling companies.

Some members, who are very senior in
the upline, claim huge income after selling products. In fact, they do not pay
any sales tax to the commercial tax department. With the condition of
compulsory of PAN, they would be compelled to disclose their income if at all
they get. Most of the income they claim is on the products purchased by the
downline members as if they actually sold them. Now they cannot escape the tax
liability. It may be noted here that the Supreme Court held that the income from the purchase of downline members is also easy and quick money.

Some direct selling companies are
euphoric over the framework issued by the Ministry of Consumers Affairs. In
fact, this is only the model framework as an advisory to the State governments
and Union territories to prepare guidelines in their respective states and union territories. Whenever there is a clash between the guidelines and the
legislation, it is not necessary to mention that the legislation prevails over
the guidelines. Even the state governments form guidelines, the Kerala
experience would recur if the guidelines were ignored by these companies. These
companies cannot do business without misrepresenting the facts to the new
members and naturally they would come under fire.

The big loss to these companies would
be removal of entry fee and renewal fee. This is the main source of income particularly
where these companies make easy and quick money.

1 comment:

The registration fees are a cash cow I suppose. Amway (and the clones) generally make most of their money from selling products to their own distributors at extortionate prices. This is an artificial market, effectively a monopoly. It is a form of "price fixing" which actually is the Achilles heel of Amway. Nearly every law suit I've seen filed against Amway by distributors always make the price fixing allegation, because it is factual. Allowing Amway to operate (even without the registration fees) permits them to basically fleece their distributors by over charging for a basket full of common, mundane goods that most consumers can find at reasonable prices elsewhere.

The selling of motivational tools by upline kingpins represents a secondary swindle. These kingpins perpetuate the lie of easy money to the distributors who buy a minimum amount of goods to remain active in the flow-chart of greed. A pyramid scheme by all accounts.

India, it seems is following the same approach as the United States by attempting to regulate the an "industry" that preys of its own children. People should know better than to join up and believe all the lies, but there are always those who want to believe the unbelievable.